PNM’s San Juan bonding bill needs improvement

Posted: Friday, Feb. 2, 2018:

The Sierra Club will oppose SB47, PNM’s securitization bill for retiring San Juan Generating Station, tomorrow in the Senate Conservation Committee.

But securitization is an innovative tool that could be used to benefit ratepayers, the people living in the Four Corners and our climate. PNM’s legislation doesn’t do that sufficiently, but Sierra Club and a coalition of environmental groups are pressuring PNM to take advantage of this opportunity in an equitable and balanced manner.

What is it, anyway? PNM says it is likely to close coal-fired San Juan Generating Station in 2022, but ratepayers are still paying back PNM for millions in capital investments it made in the plant over the decades. If the plant didn’t close early, customers would be paying those costs off until 2053, the plant’s original retirement date. If San Juan closes in 2022, either customers have to pay off the remaining $350 million, PNM has to take the loss, or a balance must be struck.

When PNM agreed to retire two units of San Juan in 2017, the Public Regulation Commission approved a deal that split the “stranded costs” for those units 50/50 between shareholders and ratepayers.

The current legislation would allow PNM to issue low-interest bonds to get its $350 million back, with customers paying back the bonds. So customers would pay off 100% of the stranded costs, but at a much lower rate of return (about 3.5%) than they’re paying now to PNM (about 10.2%). The original legislation was a good deal for PNM but didn’t benefit ratepayers and missed the opportunity to reinvest in the Four Corners community and in clean, renewable replacement power.

While Sierra Club and other environmental groups have made progress in negotiations, we cannot recommend that Senate Conservation pass a bill that would need significant improvements.

Importantly, disagreement remains about whether San Juan Generating Station would or could continue to operate after 2022. The benefits of this bill should be contingent on the plant no longer burning coal. Without agreement on that point, we cannot support passage.

Nonetheless, the progress in negotiations is worth noting:

— The original bill provided little economic-development support for San Juan County, and our coalition was able to agree with PNM, the Farmington delegation and other stakeholders that the bill should provide funds for transition, economic development and diversification to the county. The bill also requires that replacement power be sited in the same school district as San Juan to retain property-tax benefits.

— The original bill would have locked in PNM ownership of future energy resources, but done nothing to assure New Mexicans get the cleanest, cheapest energy. We were able to agree the bill should require PNM to supply 50% renewable energy by 2030 and 40% renewable energy by 2025, putting New Mexico near the top of the list nationally for renewable energy.

— Furthermore, we agreed to ensure a more competitive market for renewable energy. This is a big step toward competition in a state where energy production has been almost entirely subject to monopoly control.

The original bill would have required the PRC to include all closure costs that PNM might propose, and we were able to agree that the PRC should have full authority to review those costs and assure that they were prudently and reasonably incurred.

Despite this progress, and despite our support for legislative action to allow for low-interest bonds to cut customer costs while closing a polluting coal plant and spurring clean energy and economic growth in our communities, the bill is not ready for final passage.

Our coalition remains committed to continue to find common ground and ultimately pass legislation to ensure an equitable transition toward clean energy and economic opportunity in New Mexico. We’ll send action alerts if the bill moves beyond tomorrow’s hearing and keep you updated on any changes.

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